EBF advisor: Simon Pettinger
Publication date: 03 November 2017
The European Banking Federation has responded to the Commission’s proposal to amend the European Market Infrastructure Regulation (EMIR). The EBF broadly agrees with the aim of the proposal to provide simpler and more proportionate rules OTC derivatives to reduce costs and regulatory burdens for market participants, however there are some important changes introduced in the proposal that should be reconsidered to ensure that the proposal continues to fulfil its original objectives and supports the Capital Markets Union.
- Securitisation Special Purpose Entities should not be reclassified as financial counterparties under EMIR
Under the current European Market Infrastructure Regulation (EMIR), EU established securitisation SPVs do not fall under the definition of financial counterparties and they are designated as non-financial counterparties (NFCs). The Commission’s proposal to reclassify securitisation SPV’s, under EMIR, as Financial Counterparties from their current status as Non-Financial Counterparty’s (NFC’s) will subject these deals to the clearing and margining rules and will result in severe problems for existing deals. Additionally, we believe that imposing such intensive obligations (clearing and margin requirements) for SSPEs is unnecessary as SSPEs already contain risk mitigants and are protected from counterparty risks.
- Physically-settled Foreign Exchange (FX) Forwards should continue to benefit from a temporary exemption of variation margin requirements
Physically-settled Foreign Exchange (FX) Forwards benefit from a temporary exemption of variation margin requirements under EMIR, however this exemption is only applicable until 03 January 2018, the day of the entry into application of MiFID 2. We request that FX contracts are excluded from the Margin RTS’ VM requirements, and instead an approach is adopted to VM for FX Contracts, for example via harmonized supervisory guidance or incorporating the VM provisions from the FX Guidance into the Margin RTS, that achieves closer alignment between the EU and other jurisdictions whilst still ensuring the relevant risks are adequately addressed.
- Support for the exemption of small non-financial counterparties (NFCs-) from the transaction reporting obligation, and recommend moving to single-sided reporting
With regard to trade reporting, we welcome the exemption of small non-financial counterparties (NFCs-) from the transaction reporting obligation given the operational complexity this is generating for these entities. However, requiring financial counterparties (FCs) to report both sides of their transactions with NFCs- would result in additional burden for FCs without improving the quality of the reported data. On these grounds, we recommend moving from a ‘dual-sided’ mandatory delegation regime to a single-sided reporting for FCs’ transactions with NFCs.